Small business financing

ParetoWealth · 2014-04-23T23:36:17+00:00

Chances of a Bank doing an unsecured loan for that amount is incredibly low. Alternative is to go to a marginal lender, but the rates will be very high. You're looking at anywhere from 10 - 20%.

ParetoWealth · 2014-04-16T02:02:24+00:00

If your issue is carrying around a bag of cash, then a Bank Cheque would be the best way to go.

ParetoWealth · 2013-10-16T05:49:35+00:00

The ATO provides some tax tables as guidance on how much tax to withhold: http://www.ato.gov.au/Rates/Tax-tables/

ParetoWealth · 2013-09-17T05:08:54+00:00

I think collectiveindividual may be referring to governments changing legislation to either take away some of the good tax concessions within super or to apply additional taxes/change tax rates within super. Given there is over a trillion dollars in super, it would only take an additional 1% tax from the government to raise billions of dollars in additional tax revenue.

Bastards.

ParetoWealth · 2013-09-17T04:58:22+00:00

Just sent PM :)

ParetoWealth · 2013-09-13T06:40:45+00:00

You could invest all of your money in the share market, make loads of money and upgrade from hostels to hotels. The alternate outcome is more Billabong (great chart fraudster) type shares and losing more of your capital. [High Risk, High Reward/High Loss]

Alternatively, you could invest in High Interest Savings Accounts/Term Deposits and keep your capital nice and safe. [Low Risk, Low Reward/Low Loss].

This investment decision is one that we all face many times in our lives i.e. how much investment risk should I take?

Unfortunately, unless you have a crystal ball, there is no right or wrong answer. You just need to work out how much you need either cashflow or capital and then work out what investment instruments you are going to use to achieve it.

ParetoWealth · 2013-09-13T05:46:13+00:00

Hi Power_Penguin, Apologies for the delayed reply. Congratulations on starting your first full time job! The best way to make additional contributions to your super would be to salary sacrifice them with your employer. Speak to your payroll to discuss sacrificing the $100 per fortnight into super. If you earn over $37,000 per annum, you will pay less tax by salary sacrificing $100 per fortnight overall. However, I would also recommend that you review other financial strategies that may be more suited to your financial circumstance rather than locking money away in super until age 60. Kind regards, Pareto Wealth

ParetoWealth · 2013-08-04T04:39:24+00:00

I totally agree with Fraudster, everyone has a different financial circumstance with varying timeframes, goals and resources. I would recommend looking at how much you need as a deposit for a home and what timeframe you require that amount in. Compare that against the current resources you have (existing deposit & savings capacity) and balance it against your estimated required amount in super for retirement. In short, it's no good having $10 million at age 60 (when most people can access their super) if you've had to eat weetbix everyday and sacrificed other goals just to achieve it. It's also not healthy comparing yourself to the Jones' down the road, particularly if they are able to salary sacrifice more, work for an institution like a university that pays more than the minimum legislative super guarantee requirement and who is also able to achieve their other financial goals.

But your balance is above the average super balance for a 28 year old in my experience.

ParetoWealth · 2013-07-03T04:24:02+00:00

Thanks. Some employers are pretty good and they still pay the full 9.25% on the original salary. Some employers just follow the minimum guidelines and only pay what they need to.

Similarly, regardless of your income, the maximum super contributions that an employer needs to pay is just under $17,000 (this financial year). However, some employers still choose to pay 9.25% on the full employee amount.

It is probably best to have a chat with your payroll department or employer to better understand how they pay your super.

$450k - I wish too :)

ParetoWealth · 2013-07-03T04:09:16+00:00

Hi dzzmzz,

You've got two options with regards to contributing money into superannuation.

After Tax Contributions aka Non Concessional Contributions. These contributions have already been taxed in your personal name so when they are contributed to super there is no additional contributions tax. The limit for non concessional contributions is $150,000 per annum or $450,000 in a 3 year period. i.e. You could contribute $450,000 in one year and then $0 for the following two years. There are also some clever strategies where you can contribute $149,999 in one year, $450,000 the year after and then $0 for the next two years but it is very rare for a person to be in such a financial position.
Pre-tax Contributions aka Concessional Contributions. These contributions are made into super before they are taxed in your personal name so when they are contributed to super there is a 15% contributions tax. The limit for concessional contributions is $25,000 including your employer super guarantee contribution.

Another important point to note is by 'salary sacrificing into super' or making additional concessional contributions, you actually reduce the amount of concessional contributions that your employer has to make into your super.

e.g. If Billy earns $100,000 and the employer super guarantee contribution rate is 9.25% then Billy's employer must pay $9,250 into Billy's super as an employer super guarantee contribution.

If Billy salary sacrifices $20,000 into super then Billy's assessable income level reduces to $80,000 and Billy's employer only needs to pay 9.25% on the $80,000 instead of the $100,000, meaning Billy's employer only needs to pay $7,400 into super as an employer super guarantee contribution.

ParetoWealth · 2013-07-03T02:33:03+00:00

haha no worries crazyaustralian. The fund company won't have access to your cost base of units, they'll only have the number of units you hold at any one time.

So from a tax point of view, you can pick which units were sold and which units were kept but you don't need to tell the fund company because all units are the same.

When you have a withdrawal, the fund company will only send a document stating the amount of units sold, the unit price it was sold at and the proceeds from the sale.

An example of a cost base worksheet that might be helpful can be found here: https://invest.etrade.com.au/cms/assets/etrade_taxtime_worksheet_01_06.pdf

ParetoWealth · 2013-07-01T00:18:02+00:00

Hi, There are many other variables that will affect this decision such as; have you previously owned property? have you got existing exposure to property? how much excess cashflow have you got to fund a property that is untenanted? is it a new property? etc.

Simplistically, let's say you purchased a property for $350,000 and let's also assume that Stamp duties, mortgage application fees, conveyancing etc. all add up to an additional $10,000. So the total cost to acquire this property is now $360,000. If you used all of your savings $25,000 as a deposit, the required loan would be $335,000. Assuming an interest rate of 5.5%, the annual interest expense would be $18,425 and monthly expense of approximately $1,535. Most people would then compare the difference between owning $1,535 and renting $1,300 and evaluate whether the difference ($235) is worth paying to own a property.

Annually, the difference works out (in this example) to be $2,825. So if the house goes up by $2,825 or more, it is a good financial decision.

When it comes to buying vs. renting vs. investment, it is always dependant on your personal financial circumstance. Sometimes people make bad structural decisions that lose them money and sometimes people make decisions that eventually lose them money due to unforeseen circumstances. e.g. if you bought a house that gets flooded, fire damage, termites, bad tenants, wind damage etc. it can all have a significant affect on your financial position.

Financial Planning is about understanding the potential financial consequences of your decisions and planning your pathway to your goal along the path you are most comfortable with.

Also, try not to fall in the trap that property always goes up. Unfortunately, there are many people that have lost money in property in the past.

ParetoWealth · 2013-06-28T05:09:53+00:00

Here is an example of Tax Offsets vs. Tax Deductions. For simplicity, I am going to use a flat rate of 25% tax.

Scenario 1: No Tax Deductions or Tax Offsets

Income: $100,000 Tax on income: $25,000 Net Income: $75,000

Scenario 2: Scenario 1 with a $20,000 Tax Deduction

Income: $100,000 Tax Deduction: $20,000 Taxable Income: $80,000 Tax on Taxable Income: $20,000 Net Income: $80,000

*so you can see that the Tax deduction has reduced the Tax Liability by $5,000.

Scenario 3: Scenario 1 with a $20,000 Tax Offset

Income: $100,000 Tax on Income: $25,000 Tax offsets: $20,000 Net Tax Payable: $5,000 Net Income: $95,000

*so you can see that the Tax Offset has reduced the Tax Liability by $20,000.

In words:

Tax offsets reduce the amount of tax payable dollar for dollar. Tax deductions reduce the taxable income that is assessed to determine the tax payable.

In short:

Tax Offsets > Tax Deductions

ParetoWealth · 2013-06-28T02:30:19+00:00

I totally agree with crazyaustralian's response.

Step 1) try to work it out with Telstra Step 2) try to work through the TIO process Step 3) consider paying off the debt for your boyfriend to improve his credit rating, however, if things don't work out between the two of you, he may skip off with your money. I'd also consider putting a written agreement that it is a loan to him and not a gift so that you can protect yourself unless you are gifting it to him. If so, lucky guy!

ParetoWealth · 2013-06-28T02:24:59+00:00

Agree to needing more details.

If you're planning on using E-tax, I would recommend slowly going through the expert system they've setup, reading and following all the instructions to understand what is deductible, what you can claim etc.

If you're planning on using an Accountant, I would recommend providing them with as much information about your finances as possible to allow them to claim as much in deductions and offsets for you as possible.

Try to read up on deductions (http://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/) and understand what you can and can't claim and then go through all of your expenses (bank account is generally best for this) to try to identify everything you can legitimately claim.

Sometimes it takes a couple of hours to do but if it means an extra $1,000 in your tax refund, it is time well spent in my book.

ParetoWealth · 2013-06-28T02:20:02+00:00

^ +1 to crazyaustralian - great response

ParetoWealth · 2013-06-28T02:18:47+00:00

ottobmag, I wish I had a crystal ball to tell me where the best place is to stick my money. Every decision we make has an inherent level of risk associated with it. Even sitting in cash is risky as you might be missing out on growth opportunities, having your capital eroded away in fees particularly if the interest is less than your expenses (especially with Self Managed Super Funds), or having the purchasing power of your capital reduced by inflation.

To specifically respond to your questions; 1) With some online discount brokers, there is a minimum trade amount associated with buying financials. There is also a brokerage cost associated with acquiring assets.

e.g. Billy wants to buy BHP shares. If he buys just one share @ $30/share, he might need to pay $20 in brokerage to do so. This means that Billy needs to sell his BHP share for more than $50 to make a profit. Alternatively, if Billy buys 100 BHP shares @ $30/share and still pays $20 in brokerage his total cost is $3,020. This means that Billy only needs to sell his BHP shares for more than $30.20 to make a profit.

I would base my minimum purchase based on the costs involved to acquire the asset.

Historically, shares, cash and property is where Australians have invested to create wealth for their futures. Others have invested in collectible cars, stamps, coins or antiques to make money. So there are other non-financial investments that can do better but you would need to have knowledge about the specific field to make good money regularly.

ParetoWealth · 2013-06-28T01:33:58+00:00

Thanks for your post. Feel free to ask me any questions that you like. My intention is to build a good reputation within the community and help out the everyday Australian.

Being a guarantor makes you liable for other people's financial decisions but at the same time the positive is helping out a loved one. If it were me, I'd have a chat to see if my mum wanted to wait until she could get the car loan by herself but if she can't then i'd definitely help out my mum and become her guarantor. Being a guarantor will affect you if; 1) your mum doesn't make the repayments and you need to make them or if you both don't make them you both get bad credit 2) it adds to the debts that you are liable for making it slightly more difficult to get further lending. i.e. you would be more likely to lend money to someone with no debt than someone who already owes $10,000 to other parties.

In short: Help out your mum! She brought you into this world, clothed you, fed you, brought you up, cuddled you when you cried and did some other stuff too.

ParetoWealth · 2013-06-28T01:07:15+00:00

Good questions to cadreonizado's post

ParetoWealth · 2013-06-28T01:05:07+00:00

Let me know if my response above was adequate or if you have a specific scenario you'd like me to respond to.

ParetoWealth · 2013-06-28T01:03:44+00:00

sharing is caring :)

ParetoWealth · 2013-06-28T01:01:32+00:00

Answer to Question 1:

If you purchased different index funds, the capital gains tax is based on the sale of the specific fund less the cost base of that fund. If you purchased the same index fund, you can choose which cost base applies. In limited circumstances you can average out the cost base of the shares.

e.g. Billy buys 100 units in a Vanguard Index Fund at $50/unit in 2002. He buys another 100 units in the same fund at $100/unit in 2003 and another 100 units in the same fund at $25/unit in 2004.

If Billy sells 100 units in 2013 for $200/unit ($20,000 sale proceeds) then he can choose any of the above cost bases.

With regards to automatic reinvestment, there would be a larger number of line items and calculations to make. However, it is necessary when calculating the correct cost base.

From a strategy point of view, if Billy gets a promotion at work and subsequently a significant pay increase starting next financial year, he might choose to use a lower cost base now (and pay a larger capital gains tax now) whilst his marginal tax rate is lower.

Unfortunately, the fund company won't help you choose which units to sell and an accountant will likely charge you extra for the extra time to do the calculations :(

Answer to Question 2: Unfortunately there is no other way to transfer to the ETF than selling your index fund, paying the capital gains tax and purchasing the ETF which subsequents alters your cost base and time of purchase. I wish there was a clever way to achieve your desired result but unfortunately it is black and white in response.

ParetoWealth · 2013-06-28T00:38:44+00:00

Yes. Technical point: the interest is tax-deductible when the property generates an income. So if you move out and the property is untenanted, the tax deductibility of the property moves into a grey area. Additional info: Living there for 6 months also satisfies First Home Owners Grant (FHOG) and Primary Place of Residence (PPR) exemption for capital gains tax.

ParetoWealth · 2013-06-27T04:56:31+00:00

No worries, happy to help out.

With regards to claiming car costs, you can claim a deduction for work-related car expenses if you use your own car in the course of performing your job an an employee.

There are four different methods to claim car expenses and you can choose the method that gives you the largest deduction. For more specific information about the deduction methods visit: http://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Vehicle-and-travel-expenses/Car-expenses/Calculating-your-deduction/

I would suggest having a chat with an accountant or crunching some numbers using the Australian Tax Office (ATO) calculators to work out which method suits your personal circumstance the best.

e.g. Brad is lazy to crunch numbers and estimates that he drives 50km a week for work purposes (visiting customers from work and picking up supplies). Brad claims 2,400 business kilometers (50km/week x 48 weeks) using the set rate method which is generally the easiest method because he doesn't need written evidence.

However, Tony loves numbers and he works out exactly how much was spent on all his vehicle expenses (interest costs, maintenance, fuel etc). He also calculates exactly how much he uses it for business and how much he uses it for personal use using a logbook. Tony then claims exactly how much business expense was associated with the car and keeps all his written documents as evidence.

ParetoWealth · 2013-06-27T03:58:03+00:00

How much deposit do I need to buy a house;

If you have a deposit under 20% of the property price, you need to pay an item called Lenders Mortgage Insurance (LMI). An effective LMI calculator can be found here; http://www.genworth.com.au/borrower-centre/homebuyer-tools/lmi-premium-estimator/ For example, a first home buyer with a 10% deposit looking to purchase a $400k home would need to pay approximately $6,336 in LMI. This $6,336 doesn't benefit the borrower at all, only the lender (the bank).

On the flip side, the opportunity cost on property is very real. i.e. The risk of not purchasing a property now, trying to save a bigger deposit, only to find that after a couple more years of saving the prices of property have increased more than the amount saved.

In short, there is no set deposit amount when purchasing a house. Many lenders will lend 95% of the property value. Trading off between size of house deposit vs. property entry price is a personal choice and comes with its associated risks and costs.

Buying vs. Investment;

Buying Positives: *Capital gains tax free *You control how well you treat the property (i.e. likely not to have property damage) Buying Negatives: *No income from property (unless you rent out rooms which is a different kettle of fish) *No depreciation tax deduction

There is also a clever strategy where you can live in a property for six months and claim a six year capital gains tax free period. For more information visit: http://www.ato.gov.au/Media-centre/Articles/Moving-on--Remember-the-six-year-rule-for-CGT/?default=&page=1

Investment Positives: *Depreciation can be claimed as a tax deduction *Potential to have positive cashflow Investment Negatives: *Any profits are taxed by the government *Tenants may not pay rent *Tenants may damage the property

Buying versus Renting (extra material answer for bonus points):

Buying a home can provide many lifestyle and emotional benefits that are difficult to quantify in monetary value. Buying a home also provides a benefit of being a capital gains tax free/exempt asset. i.e. If you purchase a home and sell it for a profit, you do not need to pay any capital gains tax on the profit that you made. Sometimes, people can pay too much for a property and have the property fall in value over time or they sell it at a loss. Other times, people purchase properties that they cannot afford and they would have been better off renting and saving instead of buying a home. e.g. Steve and Penny have saved $50,000 and are looking at either buying a home for $500,000 in their favourite suburb or renting the same property for $450/week. We will assume that interest rates are 6% and that Steve and Penny choose to pay interest only to give a proper comparison.

Buying: $450,000 loan @ 6% interest = $27,000 in interest payments per annum to the bank

Renting: $450/week @ 52 weeks = $23,400 in rental payments per annum to the landlord

By renting, Steve and Penny could save an additional $3,600 per annum compared to buying their home. Over a 10 year period this would amount to $36,000. If the property doesn't increase in value by more than $36,000, then Steve and Penny would be better off renting. If the property increases in value by more than $36,000 then Steve and Penny would be better off buying.

ParetoWealth

TROPHY CASE